Economics Unit 1.3

Public goods

Products or services provided by the government sector for societal use and benefit.

Private goods

A product or service provided by the business sector for use and consumption by the business sector.

Markets

A market is any place (physical or digital) where consumers can interact with businesses for exchange.

Law of Demand

As price increases, quantity demanded decreases

Externality

When a decision between different parties affects parties who weren’t involved in the decision.

Merit good

When a good/service has net positive externalities associated with it.

Demerit good

When a good/service has net negative externalities associated with it.

Propensity to Consume

Consumers willingness and ability to spend money

Demand

The quantity of a commodity that will be purchased in a market over a given period of time at a given price.

Determinants of Demand

Factors that change how willing/able consumers are to demand

Propensity to Supply

How willing and able to supply a business is.

Supply

The quantity of a commodity that will be provided in a market over a given period of time.

Law of Supply

The proposition that the quantity supplied of a good or service varies positively with the price of the good or service. As price increases, quantity supplied increases.

Determinants of Supply

Factors that change how willing / able businesses are to supply.

Consumer Sovereignty

Is the degree to which consumer decisions determine production patterns. It reflects how consumers influence the supply of goods through their purchasing behaviors and preferences.

Price Mechanism

Through interactions between buyers and sellers it determines the price and the amount to be bought and sold. These interactions push the quantity demanded to be equal to quantity supplied.

Equilibrium

When quantity demanded equals quantity supplied

The Invisible Hand

The unobservable market force that allocates resources based on consumers acting in their self-interest, reaching equilibrium automatically.

Elasticity

The relative amount that one variable changes, given a change in another variable

Price elasticity of Demand

The responsiveness of quantity demanded to change in price.

Price elasticity of Supply

The responsiveness of quantity supplied to a given change in price.

Income Elasticity

The way in which demand changes following an increase in household income.

Elastic demand

where the percentage change in quantity demand exceeds the percentage change in price.

Inelastic demand

where the percentage change in quantity demand is less than the percentage change in price.

Unit elasticity

where the percentage change in quantity demanded is the same as percentage change in price